Vatsal Naik (55) runs a chemical factory in Sachin, on the outskirts of Surat in Gujarat. Only two years ago, his factory posted a turnover of Rs 100 crore but has been in a steep decline since. Now, he says he would be happy even if turnover hits a turnover of 50 crore this year.
“I have been in business for 30 years but have never seen such a bad time. Demand had risen for a while after Covid but the slowdown in the west is impacting us deeply,” he told Moneycontrol.
His company manufactures intermediate and specialty chemicals used in export-oriented sectors including textiles, carpets as well as pharma and drugs.
Naik is representative of millions of Indians in export-oriented sectors across manufacturing, gems and jewellery, auto components, chemicals and many others. As of June, the value of India’s goods exports was down to a three-year low of $32.97 billion, falling sharply by 22 percent on-year. However, the decline was not a one-off event. The tapering off in June was the seventh monthly fall in nine months on an annualised basis.
Indian goods exports have fallen continuously for the financial year of 2023, and were down 12 percent from a total merchandise export value of $116.77 billion recorded in April-June 2022 to stand at $102.68 billion in the same quarter this year, commerce ministry data shows.
The micro, small and medium enterprise (MSME) sector makes up for almost 50 percent of the country’s exports, as per the ministry of MSMEs, and slowing global demand weighing on India’s exports has had a disproportionate effect on MSMEs, experts in the sector say.
“MSMEs have obviously been facing a greater impact due to a slowdown in the country’s exports. The bottom line (profits) has been impacted much more compared to the top line (revenue),” said Anil Bhardwaj, general secretary, Federation of Indian Micro and Small and Medium Enterprises (FISME).
Profits low but no job losses yet
While profits have fallen in the sector anywhere between 40 percent and 50 percent, there have been no layoffs as yet, said Prashant Patel, the president of FISME. “Profits have fallen and there is definitely a slackening of income but the situation of job losses has not yet arrived,” Patel said.
According to him, while order books are looking down by anywhere between 50 percent and 60 percent with less work and growing inventories leading to stock losses, “job losses are only imminent if the situation persists for more than a year”.
Steep decline in steel exports pushing down engineering trade
Engineering goods constitute the biggest chunk of Indian exports, amounting to over 26 percent in the first quarter of FY24. The sector saw a decline of 8.55 percent in shipments, falling from an export amount of $28.54 billion in the first quarter of last year to $26.1 billion in the first quarter of FY24.
“The biggest fall has come in the metals sector with steel exports leading the charge, followed closely by iron. Other exports that have seen a fall include aluminium, zinc and copper, and auto parts, etcetera,” Arun Kumar Garodia, chairman, Engineering Export Promotion Council, told Moneycontrol.
A global economic slowdown along with central bank tightening amid high inflation are the reasons for this fall, he noted. The leading markets of North America, the European Union (EU), Latin America, and China are the ones worst affected.
On a cumulative basis, the decline in the US was steep, with total shipment value coming in at $4.30 billion during the April-June period of 2023-24 against $5.32 billion in the same period of the previous fiscal. Exports to the EU fell as much as 10 percent to $5.35 billion in the April-June period of FY24 over the same quarter a year earlier.
However, newer markets including Russia as well as CIS countries or the former Soviet states are showing growth.
“Engineering exports to Russia almost trebled in June 2023 and stood at $116.9 million. In cumulative terms, it jumped fourfold during the April-June period of the current fiscal to $337.4 million compared to $89.7 million in the same period of FY23,” Garodia pointed out.
The silver lining has been the country’s exports to new free trade agreement (FTA) partners such as the United Arab Emirates and Australia, which have increased since the signing of the trade pacts, says Garodia.
Gems and jewellery exports hit hardest, see 25 percent decline
India’s gems and jewellery exports stand at the second position in non-oil goods trade and have been hit the hardest with a steep 25 percent fall in outbound shipments in the first quarter of the current fiscal, compared to the same quarter in the previous year. Total exports are down from $10 billion in April-June last year to $7.5 billion this year.
The reason has been a slowdown in discretionary spending in the countries that imported heavily from India including the US, European Union, and Chinese markets.
“Demand from the US has fallen throughout 2022 and continued to decline in 2023. This trend seems to be continuing in the following months and hence the April-June quarter has shown a significant downfall,” Gems and Jewellery Export Promotion Council (GJEPC) executive director Sabyasachi Ray told Moneycontrol.
The downfall has been taxing on workers in the industry, as factories saw a plunge in businesses.
“The work our industry provided to freelancers has completely stopped due to stagnant exports. We are keeping factories busy by processing lab-grown diamonds. There is a slowdown but trade has not completely stopped and the sector is managing,” a diamond merchant who has factories in Surat told Moneycontrol on the condition of anonymity.
He added that regular employees continue to get their pay as before.
The outlook for the sector is grim, with the GJEPC predicting a decline of about 10-15 percent in exports for the current fiscal.
For textiles, concentrated markets leading to losses
Textile exports have fallen by over 13 percent in the April-June quarter year-on-year, driven a focus on limited markets, secretary general of the Apparel Export Promotion Council Mithileshwar Thakur pointed out.
“Markets including North America and Europe continue to be our biggest export markets with very limited exports to any other countries. With significant slowdown in their economies, our exports have drastically fallen,” he said.
However, the industry believes the India-UK FTA, once signed, will bring relief.
“The FTA could be a game changer and will provide immediate relief to the sector. The current 11 percent duty being charged by the UK will drop and with India getting duty-free access, there will be steep jump in orders for garments,” Thakur added.
India also needs to look at other markets including South Korea, Japan, and Russia which could provide a cushion to this fall in exports, he said.
The sector is also pinning its hopes on a revival in demand in the third quarter owing to a string of festivals in India and abroad.
“Diwali festivities in India and Christmas in other countries could bring some respite. But if people do not spend even then, we may be looking at a bigger problem with extended trouble, especially for MSMEs,” Thakur said.
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